The Advocate General's decision in Axel W. Bierbach, administrator of UsedSoft GmbH v Oracle International Corp was released at the end of April. The case is significant as it is one of the first in Europe to deal with the exhaustion of copyright in computer programs (or other content) downloaded from the internet rather than distributed on physical media. The AG's opinion has caused a lot of comment, but what does it really mean?
What is the case about?
Oracle is a well-known developer of computer software. Most of its software is distributed by being downloaded from it's website via the internet. Users agree to a software agreement and can download updates and patches from the website. Oracle sought an injunction in Germany to stop UsedSoft, a trader in "used" software licences, from selling Oracle "used" Oracle licences to third parties, who after purchasing such a licence would then download software from Oracle's website.
What are the legal issues?
The case concerns fundamental issues regarding the exhaustion of copyright and the ability for parties to distribute and reproduce copyright protected material. The decision focuses, in particular, on The Software Directive 2009/24 (the "Directive").
Exhaustion is conditional on the first "sale" taking place. Is the issue of a licence allowing a copy of a computer program to be made available by download from the internet a sale for the purposes of the Directive?
Yes, AG Bott felt it was artificial to draw a distinction between the making available of a copy and the grant of the right to use it. Therefore a distribution right may be exhausted in such circumstances. Where the transaction involves the transfer of ownership of a copy of the computer program, for an unlimited period of time, in return for payment of a one off fee, this was sufficient.
Does such a sale exhaust the rights in the software?
The right to distribute a copy of a computer program is exhausted if the rights holder, who allowed that copy to be downloaded from the internet to a device, also granted for consideration a right to use that copy for an unlimited period of time. In deliberating over this issue, the AG discussed Recitals 28 and 29 of the Information Society Directive 2001/29 and the distinction between the sale of goods (where exhaustion applies) and the provision of services (where exhaustion does not apply). As the provision of services includes the sale of goods online, arguments were made that no exhaustion occurred. The AG felt that a distinction as to whether the sale of goods take place remotely was irrelevant.
What about the exhaustion of reproduction?
While the right of distribution is exhaustible, the right of reproduction is not exhaustible. The AG felt that the right of reproduction cannot be impaired without adversely affecting the very substance of copyright.
Can a lawful acquirer rely on the exhaustion rule to make a new copy of the computer program?
No, as a reproduction would be required.
What does this mean?
If the CJEU agrees with the AG (which it does more often than not), unless permitted by the rights holder, a person will not be able to sell on a licence to use copyright protected works which have been downloaded from the internet because a reproduction is required. However, where the onward sale does not require a reproduction (eg it is downloaded to a USB, CD, tablet, etc) it may be possible for it to be sold on without infringement occurring.
Is this a surprise?
The effect of this Opinion in practice, if adopted by the CJEU, would not be particularly surprising. The orthodox position has long been that copyright was not exhausted online and that some form of physical media was required and so this Opinion is consistent with there being no resale market for downloaded software. That said, the Opinion does represent one of the first chinks in that broad principle, with the AG opining that at least some exhaustion does occur - the exhaustion of the distribution right that was exercised when the software was downloaded. If the CJEU agrees that is the case, then the door would seem to be open to argue that one could sell on the hardware to which a program is downloaded.
We must now await the decision from the Court of Justice of the European Union to see if it agrees with the AG.
Link to Opinion here.